Smallest businesses waiting longer than ever for payment

13 July 2015

  • Average wait for payment now 72 days for smallest businesses

The smallest businesses are now waiting longer than ever for their invoices to be paid, says the Asset Based Finance Association, the body representing the asset based finance industry in the UK and the Republic of Ireland.

According to the ABFA, UK businesses with turnovers of under £1million are now waiting an average of 72 days for payment of invoices – a day more than a year ago – despite the strengthening economic recovery.

By contrast, businesses with £500million-plus turnovers have seen payment waits fall by a day since last year to 47 days.

The ABFA says that the smallest businesses are now waiting an average of 11 days longer for payment than they were even at the peak of the recession. The ABFA’s research shows that in 2009, businesses with turnovers of under £1million had to wait an average of 61 days for payment of invoices.

The ABFA says that it is disappointing to see waits for payment that rose sharply during the recession fail to return to pre-crisis levels as the economy recovers.

Jeff Longhurst, Chief Executive of the ABFA, comments: “Despite the economic recovery gathering pace, payment delays are getting worse, not better, for small businesses.”

“It’s very worrying to see that the trend is going in the wrong direction for smaller businesses, in spite of what is a more benign business climate than we have seen for several years.  The benefits of the recovery are not being felt equally.”

“Delays to payments put enormous pressure on small businesses’ cash flow – they have to meet overheads, tax bills and their own supplier invoices whether they’ve been paid or not. Smaller businesses are particularly vulnerable.   No matter how successful they are, if just a few invoices aren’t paid on time, they could end up in serious financial trouble.”

Smallest businesses waiting longer than ever to be paid

The ABFA says that the Government’s new Small Business Conciliation Service, announced after the general election by Business Secretary Sajid Javid, is aimed at resolving disputes between SMEs and their customers over late and extended payment.

Jeff Longhurst says: “Whilst we fully support it, it remains to be seen whether the launch of another mechanism for SMEs to report their clients for late payment will have more of an impact on the issue than previous efforts.”

“Businesses already have means of redress for late payment, such as the ability to charge interest, but this is a route that many are reluctant to take if they want to get repeat business from clients.  This boils down to the inequality between large and small businesses and we need cultural change.”

“Though efforts to improve the situation are laudable, the reality is that small businesses that don’t want to jeopardise their customer relationships often feel they have no option but to just put up with poor payment practices.”

“This is an issue that is not going away quickly.  Businesses can take steps to protect their cash-flow from these risks, however.  Invoice finance can allow businesses to unlock the value in their unpaid invoices, for instance.

Invoice finance enables firms to borrow against the value of their invoices before they are paid, freeing up cash and allowing them to fund investment in growth and mitigating the impact of late payment.

* Source: analysis of Companies House data on 130,000 UK businesses

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